The Hoshiaarpur Central Cooperative Bank Ltd, Hoshiarpur V. The Addl.Commissioner of Income-tax, Hoshiarpur

ITA 348/ASR/2011

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7759 (ITAT-AMRITSAR)
• Duration Of Justice: 7 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-05-2018
• Assessment Year: 2008-2009
• Appeal Filed On: 06-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts; Commercial expediency; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1); 145; 37; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 47/ASR/2011 AS SESSMENT YEAR: 2007-08 THE HOSHIARPUR CENTRAL COOPERATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR [PAN: AAAAT 0384K] VS. ADDITIONAL COMMISSIONER OF INCOME TAX, HOSHIARPUR RANGE, HOSHIARPUR (APPELLANT) (RESPONDENT) I.T.A. NO. 93/ASR/2011 AS SESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME TAX, HOSHIARPUR CIRCLE, HOSHIARPUR VS. THE HOSHIARPUR CENTRAL COOPERATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR [PAN: AAAAT 0384K] (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SURINDER MAHAJAN (C.A.) RESPONDENT BY: SH. ALOK KUMAR, CIT- DR I.T.A. NO. 699/ASR/2014 AS SESSMENT YEAR: 2010-11 ASSTT. COMMISSIONER OF INCOME TAX, HOSHIARPUR CIRCLE, HOSHIARPUR VS. THE HOSHIARPUR CENTRAL COOPERATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR [PAN: AAAAT 0384K] 2 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT (APPELLANT) (RESPONDENT) I.T.A. NO. 684/ASR/2014 AS SESSMENT YEAR: 2011-12 THE HOSHIARPUR CENTRAL COOPERATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR [PAN: AAAAT 0384K] VS. ASSTT. C.I.T., CIRCLE, HOSHIARPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 683/ASR/2014 AS SESSMENT YEAR: 2010-11 THE HOSHIARPUR CENTRAL COOPERATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR [PAN: AAAAT 0384K] VS. DY. C.I.T., CIRCLE, HOSHIARPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 348/ASR/2011 AS SESSMENT YEAR: 2008-09 THE HOSHIARPUR CENTRAL COOPERATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR [PAN: AAAAT 0384K] VS. ADDITIONAL COMMISSIONER OF INCOME TAX, HOSHIARPUR RANGE, HOSHIARPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 399/ASR/2011 AS SESSMENT YEAR: 2008-09 3 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT ASSTT. COMMISSIONER OF INCOME TAX, HOSHIARPUR CIRCLE, HOSHIARPUR VS. THE HOSHIARPUR CENTRAL COOPERATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR [PAN: AAAAT 0384K]. (APPELLANT) (RESPONDENT) CROSS OBJECTION NO. 16/ASR/2011 (ARISING OU T OF ITA NO. 399/ASR/2011) AS SESSMENT YEAR: 2008-09 THE HOSHIARPUR CENTRAL COOPERATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR [PAN: AAAAT 0384K]. VS. ASSTT. COMMISSIONER OF INCOME TAX, HOSHIARPUR CIRCLE, HOSHIARPUR (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SH. J. S. BHASIN (ADV.) RESPONDENT BY : SH. ALOK KUMAR, CIT- DR DATE OF HEARING: 24.05.2018 DATE OF PRONOUNCEMENT: 16.07.2018 ORDER PER BENCH : THIS IS A SET OF SEVEN APPEALS AND ONE CROSS OBJECT ION (CO), BEING CROSS APPEALS (BY THE ASSESSEE AND THE REVENUE) FOR ASSES SMENT YEARS (AYS) 2007-08, 2008-09 AND 2010-11, AND ASSESSEES CO AND APPEAL F OR (AY) 2008-09 AND (AY) 4 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT 2011-12 RESPECTIVELY. THE ISSUES AGITATED BEING COM MON, THE APPEALS WERE POSTED FOR HEARING AND, ACCORDINGLY, HEARD TOGETHER, AND A RE BEING DISPOSED PER A COMMON, CONSOLIDATED ORDER, EVEN AS THESE WERE ARGU ED BY TWO SEPARATE COUNSELS, I.E., FOR DIFFERENT YEARS. ITA NOS. 47/ASR/2011 AND 93/ASR/2011 (AY 2007-08) 2. IT WOULD BE RELEVANT TO BRIEFLY RECOUNT THE FACT S OF THE CASE. THE ASSESSEE IS A COOPERATIVE-SOCIETY IN THE BUSINESS OF BANKING, I.E ., A COOPERATIVE BANK. FOR THE RELEVANT YEAR, AN EXAMINATION OF THE ASSESSEES FIN AL ACCOUNTS DURING THE ASSESSMENT PROCEEDINGS BY THE ASSESSING OFFICER (AO ), REVEALED A DISCLOSURE OF INTEREST ACCRUED ON NON-PERFORMING ASSETS (NPA ACCO UNTS) AT RS.433.06 LACS. THE SAME BEING NOT BOOKED AS INCOME, THE ASSESSEE IN EX PLANATION STATED THAT THE CATEGORIZATION OF A LOAN/ADVANCE ACCOUNT AS A NPA I S IN VIEW OF THE UNCERTAINTY AS TO ITS REALIZATION. WHEN THE REALIZATION OF THE PRI NCIPAL IS AT STAKE, THERE IS NO QUESTION OF ACCRUAL OF INTEREST INCOME ON THE CORRE SPONDING LOAN/ADVANCE (ASSET). IN VIEW OF THE AO, THE ASSESSEE WAS, IN VIEW OF THE BORROWERS CONTRACTUAL OBLIGATION, BOUND TO ACCOUNT FOR THE SAME, AND IN T ERMS THEREOF. HE, ACCORDINGLY, BROUGHT THE SAME TO TAX. IN APPEAL, THE LD. CIT(A) NOTED THAT THE ASSESSEE HAS PASSED CONTRA ENTRIES IN RESPECT OF INTEREST ON NPA ACCOUNTS. IT WAS FURTHER NOT CORRECT TO SAY THAT THE SAID INTEREST HAD BEEN KEPT OUTSIDE BOOKS, OR THAT NO ENTRIES IN RESPECT THEREOF HAD BEEN PASSED IN THE BOOKS OF ACCOUNT. THE ASSESSEE HAD IN EFFECT FOLLOWED CASH SYSTEM OF ACCOUNTING IN RESPEC T OF INTEREST ON NPA ACCOUNTS, WHICH IS IMPERMISSIBLE W.E.F. 01.04.1997, I.E., AY 1997-98 ONWARDS, IN VIEW OF THE AMENDMENT TO SECTION 145(1) BY FINANCE ACT, 199 5. IN FACT, SECTION 43D OF THE ACT PROVIDES FOR AN EXCEPTION IN THIS REGARD, SO TH AT INTEREST ON SPECIFIED (BY RBI 5 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT OR, AS THE CASE MAY BE, NABARD) CATEGORIES OF BAD A ND DOUBTFUL DEBTS WOULD STAND TO BE ASSESSED AS INCOME IN THE YEAR FOR WHIC H IT IS CREDITED BY THE ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT OR, AS THE CASE MAY BE, IS RECEIVED, WHICHEVER IS EARLIER. SECTION 43D IS NOT APPLICABLE TO A COOPERATIVE BANK BUT TO A PUBLIC FINANCIAL INSTITUTION OR A SCHEDULED BANK. AS EXPLAINED BY TH E APEX COURT TIME AND AGAIN, THE ACT REPRESENTS A SEPARATE AND INDEPENDENT CODE IN ITSELF, SO THAT THE DIRECTIONS OR INCOME RECOGNITION POLICIES BY RBI OR NABARD, ET C., COULD NOT OVERRIDE THE EXPRESS PROVISIONS OF THE ACT ( STATE BANK OF TRAVANCORE V. CIT [1986] 158 ITR 102 (SC)). THE DECISION IN UCO BANK V. CIT [1999] 237 ITR 889 (SC), RELIED BY THE ASSESSEE, WAS DISTINGUISHED BY HIM ON THE GROUN D THAT THE SAME WAS DECIDED ON THE BASIS OF A BENEFICIAL CIRCULAR BY THE BOARD AND , FURTHER, THAT PRIOR TO AY 1997- 98 MIXED SYSTEM OF ACCOUNTING WAS ADMISSIBLE UNDER THE ACT. THE ASPECT OF NON REJECTION OF BOOKS OF ACCOUNT, ALSO RAISED BY THE A SSESSEE BEFORE HIM, WAS ALSO DISCUSSED WITH REFERENCE TO THE DECISIONS BY THE TR IBUNAL. ADDITION BEING CONFIRMED THUS, THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE QUESTION AT HEART, AS WE PERCEIVE IT, IS WHETH ER INTEREST ON ACCOUNTS CLASSIFIED AS NPA HAS IN FACT ACCRUED OR NOT? IF IT HAS, THE SAME HAS TO BE REGARDED AS THE ASSESSEES INCOME (SECTION 5 R/W S. 145). A DIFFERENT POSITION WOULD OBTAIN ONLY ON THE BASIS OF THE SPECIFIC PROVISIONS, AS SE CTIONS 43B, 43D, ETC., OF THE ACT, WHICH BEING SPECIFIC AND NON OBSTANTE , SHALL PREVAIL. THE ACCOUNTING STANDARDS NOTIFIED BY THE CENTRAL GOVERNMENT U/S. 145(2) OF T HE ACT, LISTS PRUDENCE AND SUBSTANCE OVER FORM, AS AMONG THE MAJOR CONSIDERA TIONS INFLUENCING THE ACCOUNTING POLICIES TO BE FOLLOWED BY AN ENTITY (AS SESSEE) FOR THE FINANCIAL 6 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT STATEMENTS TO REPRESENT A TRUE AND FAIR VIEW OF THE STATEMENT OF AFFAIRS OF ITS BUSINESS. PRUDENCE REQUIRES THAT A PROPER ASSESSMEN T BE MADE, IN LIGHT IN THE INFORMATION AVAILABLE, OF ALL KNOWN LIABILITIES AND LOSSES. SUBSTANCE OVER FORM REQUIRES THAT THE ACCOUNTING TREATMENT IS GOVERNED BY THE SUBSTANCE OF THE TRANSACTION AND NOT ITS LEGAL FORM. PUT TOGETHER, T HE TWO ARTICULATE AND REINFORCE THE REAL INCOME THEORY, APPROVED BY THE APEX COURT IN, AMONG OTHERS, GODHRA ELECTRICITY CO. LTD. V. CIT [1997] 225 ITR 746 (SC); POONA ELECTRIC SUPPLY CO. LTD. V. CIT [1965] 57 ITR 521 (SC); CIT V. SHOORJI VALLABHDAS AND CO. [1962] 46 ITR 144 (SC)). THE LD. CIT(A) HAS IN OUR VIEW MISRE AD THE DECISION BY THE APEX COURT IN UCO BANK (SUPRA). TRUE, THE ASSESSEE IN THAT CASE SUCCESSFU LLY RELIED ON A CIRCULAR (DATED OCTOBER 9, 1984) BY THE BOARD, PROV IDING FOR NON-PROVISION OF INTEREST ON STICKY LOANS, I.E., WHERE THERE HAD BEE N NO RECOVERY FOR THE LAST THREE YEARS. THE HON'BLE COURT, HOWEVER, FOUND THE SAID C IRCULAR TO BE CONSISTENT WITH SECTION 145 OF THE ACT. THE EARLIER DECISION IN STATE BANK OF TRAVANCORE (SUPRA) WAS ALSO EXPLAINED. WE HAVE IN THE INSTANT CASE ITS ELF SHOWN SECTION 145 TO CONTAIN INGREDIENTS OF REAL INCOME THEORY. AS EXPLAINED IN CIT V. VASISTH CHAY VYAPAR LTD. [2011] 330 ITR 440 (DEL), THE APEX COURT IN SOUTHERN TECHNOLOGIES LTD. V. JT. CIT [2010] 320 ITR 577 (SC) APPROVED THE REAL INCOME TH EORY ENGRAINED IN THE PRUDENTIAL INCOME RECOGNITION NORMS BY RBI, ON THE BASIS OF WHICH THE LOAN ACCOUNTS HAD BEEN CLASSIFIED AS NPA AND, FURTHER, I NCOME NOT RECOGNIZED THEREON. WE THEREFORE FIND NO INCONSISTENCY BETWEEN THE ASSE SSEE FOLLOWING MERCANTILE METHOD OF ACCOUNTING, AS STIPULATED BY S. 145, AND THE NON-CREDIT OF INTEREST ON NPA ACCOUNTS TO ITS PROFIT AND LOSS ACCOUNT, BY THE ASSESSEE. IT WAS FURTHER ARGUED BEFORE US THAT SECTION 45Q OF THE RESERVE BANK OF I NDIA ACT OVERRIDES ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW F OR THE TIME IN FORCE AND, 7 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT THEREFORE, THE ACT AS WELL, WHICH REPRESENTS ANOTHE R CONSIDERATION THAT PREVAILED WITH THE HON'BLE DELHI HIGH COURT IN VASISTH CHAY VYAPAR LTD. (SUPRA). THOUGH IT IS, IN VIEW OF THE FOREGOING FINDINGS, NOT NECESSAR Y FOR US TO DISCUSS THIS ASPECT, WE MAY STATE THAT THIS ASPECT FINDS CONSIDERATION AND ELABORATION BY THE APEX COURT IN SOUTHERN TECHNOLOGIES LTD. (SUPRA). THE SCOPE OF THE NON-BANKING FINANCIAL COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTION S, 1998, INCLUDING THE PROVISIONS OF CHAPTER III-B OF THE RBI ACT, 1934 (W HICH CONTAINS THE SAID S.45Q), STAND CONSIDERED THEREIN IN THE CONTEXT OF COMPUTAT ION OF INCOME UNDER THE ACT IN EXTENSO . WITH REFERENCE TO THE JUDICIAL PRECEDENTS, INCLUD ING POONA ELECTRIC SUPPLY CO. LTD. (SUPRA), IT STANDS EXPLAINED THAT INCOME UNDER THE ACT HAS TO BE ON THE BASIS OF REAL INCOME SUBJECT TO THE PROVISIONS OF T HE ACT. REFERENCE TO S. 45Q, CONSIDERED BY THE APEX COURT, MAY THEREFORE NOT BE OF MOMENT. WHY, ON FACTS, WE HAVE FOUND THAT THERE IS NO INCONSISTENCY BETWEEN T HE SAID INCOME RECOGNITION NORMS BY RBI, I.E., ASSUMING THE ASSESSEE TO BE COV ERED THEREBY, AND NOT THAT BY NABARD, AS CONTENDED BY THE REVENUE, IN WHICH CASE THE QUESTION OF APPLICATION OF SECTION 45Q OF THE RBI ACT DOES NOT ARISE. REASO NABLE CERTAINTY, ON THE BASIS OF OBJECTIVE MATERIAL AND AVAILABLE INFORMATION, AS TO THE ULTIMATE REALIZABILITY OF THE INCOME, IS A PRE-CONDITION FOR RECOGNITION OF INCOM E, FOR WHICH REFERENCE MAY BE MADE TO ACCOUNTING STANDARD (AS) 9 ISSUED BY THE IC AI, ALSO ADVERTED TO IN VASISTH CHAY VYAPAR LTD. (SUPRA). THE SAME BEING MISSING, THERE IS NO ACCRU AL OF INCOME, I.E., ON FACTS, THE OBLIGATION TO PAY INTER EST UNDER THE LOAN CONTRACT NOTWITHSTANDING. WE SAY SO AS THE REVENUE HAS NOT A T ANY STAGE CHALLENGED THE SAID UNCERTAINTY OR CONTENDED OF THE INCOME RECOGNITION NORMS STATED TO BE FOLLOWED BY THE ASSESSEE AS EITHER NOT RELEVANT OR NOT HAVING A DIRECT BEARING ON THE SAID UNCERTAINTY. RATHER, WE FIND IT QUEER THAT, ON ONE HAND, THE REVENUE ITSELF NOTIFIES 8 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT ACCOUNTING STANDARDS WHICH PROVIDE PRIMACY TO PRUD ENCE, WHILE, ON THE OTHER, OBJECTS WHEN THE ASSESSEE, IN PURSUANCE TO THOSE NO RMS, REFRAINS FROM BOOKING INCOME! WE, ACCORDINGLY, HAVE NO HESITATION IN, ACCEPTING T HE ASSESSEES CLAIM, DIRECTING THE DELETION OF THE AMOUNT OF INTEREST IN COME. THERE IS, WE MAY THOUGH ADD, NO QUESTION OF THE REVENUE BEING NOT ENTITLED TO PROCEED IN THE MATTER IN THE ABSENCE OF NON-REJECTION OF ACCOUNTS. THE LIMITED I SSUE THAT ARISES HERE IS WHETHER THERE HAS INDEED BEEN AN ACCRUAL OF INCOME OR NOT, WHICH THE ASSESSEE CONTENDS ON THE BASIS OF OBJECTIVE DATA WITH REGARD TO THE PERF ORMANCE OF THE RELEVANT ACCOUNTS IN THE PAST AS WELL AS THE BINDING NATURE OF THE IN COME RECOGNITION NORMS ON IT. THE SAME HAVE BEEN FOUND BY US AS IN AGREEMENT WITH SEC TION 145, WHICH CANNOT BUT BE READ AS CONSISTENT WITH THE REAL INCOME THEORY, WHI CH THE HON'BLE COURTS HAVE FOUND TO BE ENGRAINED IN THE SAID NORMS. WE DECIDE ACCORDINGLY, AND THE ASSESSEE SUCCEEDS ON ITS GROUNDS 1 AND 2. 4. THE NEXT ISSUE, PER GD. 3, IS IN RESPECT OF DISA LLOWANCE OF FUEL AND HIRE CHARGES U/S. 37(1) OF THE ACT. THE ASSESSEE-BANK WA S DURING ASSESSMENT PROCEEDINGS ASKED TO EXPLAIN THE BUSINESS PURPOSE O F THE SAID EXPENDITURE, SUFFERED AND CLAIMED AT RS.5,89,875/- FOR THE CURRENT YEAR, IN-AS-MUCH AS THE SAME STOOD INCURRED IN RESPECT OF THE ASSESSEES VEHICLES USED BY THE DEPARTMENT OF COOPERATIVE SOCIETIES, PUNJAB. THE LETTER BY THE RE GISTRAR OF COOPERATIVE SOCIETIES, GOVERNMENT OF PUNJAB, ITSELF CLARIFIES THAT THE EXP ENDITURE WAS WITHOUT ANY LEGAL MANDATE FOR THE SAME, AND NEITHER COULD THE SAME BE SAID TO BE INCURRED FOR ASSESSEES BUSINESS. THE DISALLOWANCE BEING AFFECTE D THUS, STOOD CONFIRMED IN FIRST APPEAL FOR PRINCIPALLY THE SAME REASONS. THERE IS N OTHING IN THE CHARTER OF EITHER THE 9 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT REGISTRAR OF COOPERATIVE SOCIETIES OR OF THE ASSESS EE-BANK, FOR THE FORMER TO REQUIRE THE ASSESSEE TO BEAR A PART OF THE ADMINIST RATIVE BURDEN OF ITS OFFICE. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE FACTS ARE NOT IN DISPUTE. THE LAW PER SECTION 37(1), UNDER WH ICH SECTION THE DEDUCTION FOR EXPENDITURE IS BEING CLAIMED, OR IS OTHERWISE ALLOW ABLE, MANDATES DEDUCTION OF ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS BY AN ASSESSEE. AS IS WELL-SETTLED, THE WORD WHOLLY IN THE SAID EXPRESSION REFERS TO ITS QUANTUM, WHILE EXCLUSIVELY THEREIN REFERS TO THE OBJECT OR PURPOSE FOR INCURRING THE EXPENDITURE. THE OTHER CONDITIONS, NOT APPLICAB LE IN THE INSTANT CASE, ARE THAT THE EXPENDITURE SHOULD NOT BE IN THE NATURE OF CAPI TAL OR PERSONAL EXPENDITURE OR OF THE NATURE REFERRED TO IN SECTIONS 30 TO 36. THE SC OPE AND AMBIT OF THE WORD WHOLLY AND EXCLUSIVELY STANDS EXPLAINED BY THE AP EX COURT PER ITS DECISIONS, INTERALIA , IN SASSOON J. DAVID & CO. P. LTD. V. CIT [1979] 118 ITR 261, 275 (SC); SRI VENKATA SATYANARAYNA RICE MILL CONTRACTORS CO. V. CIT [1997] 223 ITR 101 (SC); CIT (ADDL.) V. KUBER SINGH BHAGWANDAS [1979] 118 ITR 379, 386-88 (MP)(FB); CIT V. SALES MAGNESITE (P.) LTD. [1995] 214 ITR 1 (BOM). AGAIN, THE EXPRESSION FOR THE PURPOSE OF THE BUSINESS, AS EX PLAINED IN CIT V. MALLAYALAM PLANTATIONS LTD. [1964] 53 ITR 140, 150 (SC), EXTENSIVELY FOLLOWED, IS THAT THE SCOPE OF THE SAID EXPRESSION IS WIDER THAN THAT OF THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS, OBTAINING IN THE ANALOGOUS PROVIS ION (S. 10(2) (XV)) OF THE 1922 ACT. THE SAME WOULD INCLUDE NOT ONLY DAY TO DAY RUN NING OF THE BUSINESS BUT ALSO RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZA TION OF MACHINERY; IT MAY INCLUDE MEASURES FOR THE PRESERVATION OF THE BUSINE SS OR FOR THE PROTECTION OF THE 10 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT ASSETS AND PROPERTY THEREOF FROM EXPROPRIATION COER CIVE PROCESS OR ASSERTION OF HOSTILE TITLE; IT MAY COMPREHEND MANY OTHER ACTS IN CIDENTAL TO THE CARRYING ON OF A BUSINESS. IN SHORT, THE WORDS CONNOTE COMMERCIAL E XPEDIENCY, CONSIDERED FROM A BUSINESSMAN POINT OF VIEW AND, THEREFORE, WOULD NOT INCLUDE THE CONDITION OF BEING INCURRED NECESSARILY. IN THE PRESENT CASE, HOWEVE R, WE ARE UNABLE TO FIND ANY COMMERCIAL EXPEDIENCY. THE ASSESSEES ONLY EXPLANAT ION, AS WE SEE IT, AND EVEN AS PUT FORTH BY THE LD. COUNSELS BEFORE US, IS THAT TH E REGISTRAR OF SOCIETIES BEING A REGULATORY BODY, THE ASSESSEE COULD NOT REFUSE TO A CCEDE TO ITS PRESCRIPTIONS FOR ALL THE COOPERATIVE BANKS MEETING THE MAINTENANCE COST OF THE VEHICLES BEING USED BY ITS OFFICERS. ON BEING ASK BY THE BENCH AS TO HOW C OULD IT BE SAID THAT THE ASSESSEE COULD NOT REFUSE IN THE ABSENCE OF ANY LEGAL OR CON TRACTUAL OBLIGATION, NO SATISFACTORY ANSWER WAS FORTHCOMING. IN FACT, THE R EGISTRAR OF COOPERATIVE SOCIETIES (ROCS) IS A REGISTERING AUTHORITY, AND NO T A REGULATORY AUTHORITY. IT IS THE NABARD (OR RBI) UNDER WHOSE SUPERINTENDENCE, DIRECT ION AND CONTROL, I.E., THE BANKING POLICY AS WELL AS THE POLICY FRAMEWORK IS C ONCERNED, THAT IS THE REGULATORY BODY FOR THE ASSESSEE-BANK. FURTHER, EVEN SO, THE U SE OF THE VEHICLES BEING FOR THE PURPOSES OF ITS OFFICERS, IT IS THE PURPOSE OF THE ROCS FOR WHICH THE EXPENDITURE STANDS INCURRED, AND NOT FOR THE ASSESSEES BUSINES S. IN FACT, EVEN THE LETTER DATED 15.09.2008 BY THE ROCS, REFERRED TO DURING HEARING (PB PGS. 40-41), EVEN AS POINTED OUT BY THE LD. DR, STATES OF THE NEED TO CO NTROL THE EXPENDITURE IN VIEW OF ITS MISUSE, BY FIXING A QUANTITATIVE CAP IN TERMS O F LITRES OF FUEL PER MONTH. IT DOES NOT POINT OUT THE PROVISION/PRESCRIPTION UNDER WHIC H THE CONTRIBUTION WAS BEING REQUISITIONED, WHICH IS ONLY IN THE NATURE OF AN EX ACTION, APART FROM THE FACT THAT IT DOES NOT SERVE ANY BUSINESS PURPOSE OF THE ASSESSEE . WE MAY HERE REFER TO THE DECISION IN LAKSHMIJI SUGAR MILLS CO. PVT. LTD. V. CIT [1971] 82 ITR 376 (SC). 11 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT THE ASSESSEE IN THAT CASE EMPHASIZED THE STATUTORY OBLIGATION UNDER WHICH THE CONTRIBUTION (FOR CONSTRUCTING ROADS) WAS MADE BY I T, POINTING OUT TO THE ELEMENT OF COMPULSION THEREIN. THE APEX COURT DID NOT, HOWEVER , STOP THEREAT. IT PROCEEDED TO EXAMINE THE PURPOSE FOR WHICH THE CONTRIBUTION, I.E ., FOR THE DEVELOPMENT OF ROAD, WAS BEING DEFRAYED BY THE ASSESSEE. THE EXPENDITURE WAS ALLOWED, FINDING IT TO HAVE BEEN INCURRED TO FACILITATE THE TRANSPORTATION OF SUGARCANE. THE EXPENDITURE WAS THUS INCURRED ESSENTIALLY FOR THE BENEFIT OF TH E BUSINESS, WHICH GOT AN ADVANTAGE OF AN ENDURING BENEFIT FOR ITSELF. IN OTH ER WORDS, THE (STATUTORY) OBLIGATION WAS BY ITSELF NOT SUFFICIENT IF THE PURP OSE OF THE EXPENDITURE WAS NOT FOR THE BENEFIT OF OR THE RUNNING OF THE ASSESSEES BUS INESS. IN THE INSTANT CASE, WE FIND NEITHER OF THESE TWO CONDITIONS BEING SATISFIED; TH E FORMER BEING IN FACT INCIDENTAL IN-AS-MUCH AS A VOLUNTARY EXPENDITURE, SHOWN TO BE FOR THE PURPOSE OF THE ASSESSEES BUSINESS, WOULD QUALIFY FOR DEDUCTION. I N OUR CONSIDERED VIEW, THEREFORE, THE IMPUGNED EXPENDITURE DOES NOT MEET T HE TEST OF SECTION 37(1), AND STANDS RIGHTLY DISALLOWED BY THE REVENUE. WE DECIDE ACCORDINGLY, AND THE REVENUE SUCCEEDS. 6. THE FIRST GROUND OF THE REVENUES APPEAL IS IN R ESPECT OF DELETION OF A SUM OF RS.34,00,732/- ADDED BY THE AO AS INCOME FROM OTHER SOURCES ON ACCOUNT OF NON PAYMENT OF DIVIDEND DISTRIBUTION TAX BY THE ASSESSE E-COMPANY, WHICH IN FACT CLAIMS TO BE NOT LIABLE FOR THE SAID TAX. WE FIND N O BASIS FOR THE SAID ADDITION. EVEN ASSUMING, FOR THE SAKE OF ARGUMENT, THAT THE DIVIDE ND DISTRIBUTION TAX WAS INDEED PAYABLE BY THE ASSESSEE-COMPANY, THE REVENUE CAN ON LY PROCEED UNDER LAW TO EXACT THE SAME. IT DOES NOT IN ANY MANNER LEAD TO T HE INFERENCE OF ANY INCOME HAVING ACCRUED TO THE ASSESSEE AS A RESULT. RATHER, THE SAID TAX, WHERE PAID, WOULD 12 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT STAND TO BE DEBITED TO ITS OPERATING STATEMENT (P&L A/C) FOR THE YEAR. WE DECIDE ACCORDINGLY. 7. VIDE THE SECOND GROUND, THE REVENUE CONTESTS THE DELETION OF THE DISALLOWANCE OF THE PROVISION ON STANDARD ASSETS, M ADE BY THE ASSESSEE-BANK AT THE RATE OF 0.25%, ON THE GROUND IT BEING ONLY A CONTIN GENT LIABILITY. THE ASSESSEE ALLUDES TO THE RBI/NABARD GUIDELINES, WHICH ARE TO BE MANDATORILY FOLLOWED. THE SAME, IN VIEW OF THE AO, WOULD NOT CONVERT THE PROVISION AS TOWARD AN EXISTING LIABILITY, ONLY IN WHICH CASE WOULD THE PR OVISION BE DEDUCTIBLE U/S. 37(1), QUOTING FROM THE BOARD INSTRUCTION NO. 17/2008 DATE D 26.11.2008, QUALIFYING THAT A PROVISION IN RESPECT OF UNCERTAIN OR CONTINGENT L IABILITY, WHICH HAD NOT ACCRUED, WOULD NOT QUALIFY FOR DEDUCTION. IN APPEAL, THE ASS ESSEE FOUND FAVOUR WITH THE LD. CIT(A) ON THE BASIS THAT THE PROVISION, THOUGH AGAI NST STANDARD ASSETS, IS YET A PROVISION FOR BAD AND DOUBTFUL DEBTS AND, THEREFORE , GOVERNED BY SECTION 36(1) (VIIA), WHICH ADMITS DEDUCTION AT SEVEN AND A HALF PER CENT. OF THE TOTAL INCOME (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA), WITH THE SAID LIMIT BEING NOT BREACHED IN THE INSTANT CASE. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND NO INFIRMITY IN THE IMPUGNED ORDER. THE AO SHALL COMPUTE THE DEDUCTION U/S. 36(1)(VIIA) INCLUDING THE IMPUGNED D ISALLOWANCE, AND WHERE THE TOTAL DEDUCTION DOES NOT EXCEED THE STATUTORY LIMIT THERE-UNDER, NO DISALLOWANCE COULD BE MADE. HERE IT MAY ALSO BE RELEVANT TO STAT E THAT SECTION 36(1)(VIIA) IS APPLICABLE TO COOPERATIVE BANKS (OTHER THAN THOSE E XCLUDED) W.E.F. 01.04.2007, I.E., AY 2007-08 ONWARDS. THE ASSESSEE HAS NOT BEEN SHOWN TO US AS FALLING WITHIN THE EXCLUDED CATEGORIES, WHICH WE NOTE TO BE THE SAME A S THOSE SAVED U/S. 80P(4). AS 13 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT SUCH, CLEARLY EITHER OF THE TWO SECTIONS, I.E., 36( 1)(VIIA) OR SECTION 80P, SHALL APPLY TO THE ASSESSEE, WHO CANNOT TAKE AN AMBIVALENT STAN D WITH REGARD TO ITS STATUS. THE PARAMETERS OF A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK, I.E., TWO SPECIFIED EXCLUDED CATEGORIES, ARE WELL SETTLED. THE AO SHALL ACCORDINGLY EXAMINE THE MATTER, AND DECIDE THE SAME ISSUING DEFINITE FINDINGS OF FACT, OF COURSE, AFTER HEARING THE ASSESSEE IN THE MATTER. IN FACT, AS IT APPEARS, THE ASSESSEE HAS NOT CLAIME D DEDUCTION U/S. 80P, FOR OTHERWISE THIS ITSELF WOULD HAVE BEEN THE SUBJECT MATTER OF D ISPUTE BETWEEN THE PARTIES, WITH THE AO CLEARLY ADVERTING TO SECTION 80P(4), EXCLUDI NG THE ASSESSEE FROM THE PURVIEW OF SECTION 80P. WHY, IN THAT CASE, I.E., OF THE ASSESSEE BEING CONSIDERED AS ELIGIBLE FOR DEDUCTION U/S. 80P EVEN FOR AY 2007-08 ONWARDS, ALL THE OTHER ISSUES WOULD GET SUBSUMED THEREIN AS THE ASSESSEES ENTIRE INCOME FROM BANKING BUSINESS WOULD GET DEDUCTED U/S. 80P(1) R.W.S. 80P(2)(A)(I). AS SUCH, IT IS RATHER THE AO WHO APPEARS TO BE AMBIVALENT BY DENYING THE ASSESSEE DE DUCTION U/S. 36(1)(VIIA) AS WELL AS U/S. 80P. WE DECIDE ACCORDINGLY. 9. THE THIRD AND FINAL GROUND RAISED BY THE RE VENUE IS WITH REGARD TO AN ADDITION OF RS.1,27,980. THE ASSESSEE HAD BOTH UNDER-CHARGED AS WELL AS OVER-CHARGED INTEREST TO ITS CUSTOMERS (I.E., ON LOANS) AS WELL AS ITS DEPOSITORS, AS UNDER, EVEN AS NOTED IN THE AUDIT REPORT: (AMOUNT IN R S.) S. NO. PARTICULARS LESS EXCESS 1. INTEREST ON DEPOSITS 1,68,828 26,661 2. INTEREST RECEIVED ON LOANS 1,94,795 1,01, 319 14 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT THE AO ADDED THE ENTIRE EXCESS INTEREST, I.E., AT R S.1,27,980. HE, AS APPARENT, HAS TAKEN ONLY A PART OF THE AUDITORS OBSERVATION PER THEIR REPORT. TAKEN IN TOTALITY, IT WOULD IMPLY THAT THE INCOME WOULD STAND REDUCED BY RS.48,691. THE LD. CIT(A) ACCORDINGLY HELD THAT THERE WAS NO GROUND FOR MAKIN G THE IMPUGNED ADDITION, AND DIRECTED ITS DELETION. THE FACTS ARE NOT IN DISPUTE , AND WE FIND NO INFIRMITY IN THE ADJUDICATION BY THE LD. CIT(A). WE DECIDE ACCORDING LY, AND THE ASSESSEE SUCCEEDS. 10. THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THE REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. AY 2008-09 ASSESSEES APPEAL (ITA NO. 348/ASR/2011) 11. GROUND 1 OF THE ASSESSEES APPEAL RAISES THE (S AME) ISSUE OF DENIAL OF CLAIM FOR FUEL AND HIRE CHARGES. OUR ADJUDICATION OF GROU ND 3 FOR AY 2007-08 (IN ITA 47/ASR/2011) SHALL MUTATIS MUTANDIS APPLY FOR THIS GROUND AS WELL (REFER PARA 4 & 5 OF THIS ORDER) 12. GROUND 2 RAISES THE ISSUE OF DISALLOWANCE OF PR OVISION (AT THE RATE OF 0.25% ON STANDARD LOANS). WHILE THE BASIS OF THE AOS DIS ALLOWANCE IS THE SAME AS FOR AY 2007-08, I.E., THERE BEING NO LIABILITY IN PRAESENTI , SO THAT IT IS ONLY IN THE NATURE OF A CONTINGENT LIABILITY, NOT ADMISSIBLE U/S. 37(1), THE LD. CIT(A), AS FOR AY 2007-08, ACCEPTED THE ASSESSEES CLAIM AS, IN HIS VIEW, THER E WAS NOTHING TO SHOW THAT THE CLAIM WAS NOT COVERED BY THE PROVISION OF SECTION 3 6(1)(VIIA). THE PROVISION AGAINST STANDARD LOANS BEING ONLY A PROVISION FOR B AD AND DOUBTFUL DEBTS, WOULD STAND TO BE COVERED U/S. 36(1)(VIIA). THAT BEING TH E CASE, WE FIND NO REASON FOR THE REVENUE IMPUGNING THE PROVISION AGAINST STANDARD AS SETS. THUS, SUBJECT TO THE LIMIT 15 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT PRESCRIBED U/S. 36(1) (VIIA), I.E., 7.5% OF THE INC OME, BEING NOT BREACHED, THE ASSESSEE WOULD BE ENTITLED TO THE PROVISION AGAINST STANDARD ASSETS. WE DECIDE ACCORDINGLY. 13. THIS BRINGS US TO GROUNDS 3 AND 4. THE ASSESSEE S CLAIM U/S. 36(1)(VIIA), HOWEVER, WAS EXAMINED BY HIM TO FIND IT TO INCLUDE THE FOLLOWING: (A) LOSS ON SALE OF CAR: RS.0.11 LACS (B) WRITE OFF OF PERISHABLE GOODS: RS.0.46 LACS (C) UNREALIZED INTEREST FOR 2006-07 NOT REALIZED DURING 2007-08 RS.1.43 LACS RS. 2.00 LACS LOSS ON SALE OF CAR AS WELL AS WRITE OFF OF PERISHA BLE GOODS COULD NOT BE REGARDED AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. THE ASSE SSEE STATES THAT WHILE, WITHOUT DOUBT, WRITE OFF OF PERISHABLE ARTICLES CANNOT BE C LAIMED AS A PROVISION FOR BAD AND DOUBTFUL DEBTS, IT IS NOT BARRED FROM CLAIMING THE SAME AGAINST ANY OTHER PROVISION FALLING UNDER CHAPTER IV-D. SURELY, HOWEVER, THE AS SESSEE HAS TO SPECIFY THE PROVISION WHERE-UNDER THE SAID CLAIM IS ADMISSIBLE. WHY, THE LD. AR, ON BEING QUERIED BY THE BENCH DURING HEARING IN THIS REGARD, WAS UNABLE TO SPECIFY THE SAME OR EVEN THE NATURE OF THE ARTICLES, STATED TO HAVE SINCE PERISHED, OR EVEN IF THE SAID ARTICLE STOOD INCLUDED IN THE ASSESSEES BLOCK OF A SSETS. THAT IS, THEIR ACCOUNTING TREATMENT. WHILE, THEREFORE, NO CASE FOR A SET ASID E IS MADE OUT, WE, YET, IN THE INTEREST OF JUSTICE, CONSIDER IT PROPER TO ALLOW TH E ASSESSEE A FINAL OPPORTUNITY TO PRESENT ITS CASE BEFORE THE AO IN THE APPEAL EFFECT GIVING PROCEEDINGS. THE AO SHALL, WHERE A CASE DULY SUBSTANTIATED, IS MADE OUT BY THE ASSESSEE, CONSIDER THE 16 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT ASSESSEES CONTENTION AND ADJUDICATE PER A SPEAKING ORDER. WITHOUT DOUBT, THE ONUS TO PROVE ITS CLAIM, BOTH ON FACTS AND IN LAW, WOULD BE ON THE ASSESSEE. WE DECIDE ACCORDINGLY. 14. GROUND 4 IS IN RESPECT OF CLAIM OF RS.1.43 LACS (REFER PARA 13 ABOVE). THE SAME WAS DENIED ON THE BASIS THAT THE SAID PROVISIO N COULD NOT BE REGARDED AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. THE ASSESSEE S CLAIM IS THAT THE INTEREST, BOOKED AS INCOME FOR FY. 2006-07 (AY 2007-08), BEIN G NOT REALIZED EVEN DURING FY. 2007-08 (AY 2008-09), WAS REVERSED. THAT IS, CO NSTITUTES REVERSAL OF INTEREST, SO THAT IT WOULD NOT, AS STATED BY THE LD. CIT(A), STA ND TO BE DEBITED TO THE PROVISION ACCOUNT. 15. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE BANK, FOLLOWING ACCRUAL SYSTEM OF ACC OUNTING, HAD BOOKED INCOME FOR AY 2007-08 EVEN AS THE INTEREST WAS PEND ING REALIZATION. THE SAME HAVING NOT BEEN REALIZED EVEN DURING AY 2008-09, TH E CURRENT YEAR, THE SAME WAS REVERSED. THE ASSESSEE HAS ITSELF CLAIMED THIS REVE RSAL AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. IF THE INCOME HAD BEEN, AS CLAIMED, ALREADY BOOKED AS INCOME (FOR AY 2007-08), ALL THAT NEEDS TO BE DONE IS TO THE DE BIT THE PROVISION (FOR BAD AND DOUBTFUL DEBTS) ACCOUNT, WITH A CORRESPONDING CREDI T TO THE RESPECTIVE DEBTORS ACCOUNT/S, WHOSE ACCOUNT/S WOULD HAVE BEEN DEBITED ON CHARGE OF INTEREST FOR FY. 2006-07 (AY 2007-08). WE FIND NOTHING WRONG IN THE ADJUDICATION BY THE LD. CIT(A), NOR COULD THE LD. AR DURING HEARING POINT O UT TO ANY. THIS DECIDES ASSESSEES GROUND 4. 17 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT THIS, HOWEVER, YET, LEAVES ANOTHER ASPECT OF THE M ATTER. THE ASSESSEE HAS, APART FROM THE PROVISION OF RS.2 LACS (AS AT PARA 1 3 ABOVE), MADE FURTHER PROVISION OF RS.850 LACS U/S. 36(1) (VIIA), AS UNDER, I.E., A T A TOTAL OF RS.852 LACS: (A) PROVISION MADE AGAINST STANDARD ASSETS RS.100 LACS (B) PROVISION AGAINST RURAL ADVANCES RS.750 LACS RS.850 LACS THE PROVISION U/S. 36(1)(VIIA) AT THE RATE OF 7.5% OF INCOME WORKING TO RS.98.31 LACS, THE LD. CIT(A) RESTRICTED THE DEDUCTION FOR T HE PROVISION FOR BAD AND DOUBTFUL DEBTS THERETO, THUS, IN EFFECT, DIRECTING A DISALLO WANCE FOR RS.1.69 LACS (RS.100 LACS- RS.98.31 LACS). THE ASSESSEES CASE (ALSO REFER GRO UND 2) IS THAT THE PROVISION U/S. 36(1)(VIIA) SHOULD BE CONSIDERED AT RS.850 LACS, I. E., BY INCLUDING RS.750 LACS, WHICH IS WITHIN THE PRESCRIBED LIMIT OF 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES OF THE BANK (COMPUTED IN THE PRESCRIBED MANNER). THAT IS, THERE IS NO SCOPE FOR CONSIDERING THE PROVISION (U/ S. 36(1)(VIIA)) DISJUNCTIVELY. AND THAT BOTH THE COMPONENTS OF 36(1)(VIIA) MUST BE CON SIDERED TOGETHER IN-AS-MUCH AS IT IS A SINGLE PROVISION, ALBEIT COMPRISING OF TWO PARTS, EACH OF WHICH IS TO BE COMPUTED SEPARATELY. AS LONG AS THEREFORE THE TOTAL PROVISION IS WITHIN THE TOTAL AMOUNT COMPUTED AS PRESCRIBED U/S. 36(1)(VIIA), NO DISALLOWANCE COULD BE MADE WITH REFERENCE TO EITHER COMPONENT. IN OUR CONSIDER ED VIEW, FIRSTLY, THE CRYSTALLIZATION OF THE AMOUNT OF PROVISION U/S. 36( 1)(VIIA), IN-SO-FAR AS IT IS BASED ON ASSESSED INCOME, SHALL HAVE TO AWAIT THE FINALIZATI ON OF AND, THUS, COULD ONLY BE AFTER GIVING THE EFFECT TO THE ASSESSEES OTHER CLA IMS (OR COUNTER CLAIMS), I.E., IN APPEAL PROCEEDINGS. ON MERITS, THE ASSESSEE HAS AGG REGATED THE PROVISION INTO ITS 18 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT TWO CONSTITUENTS, OPENING AND MAINTAINING SEPARATE (PROVISION) ACCOUNTS FOR EACH OF THEM, AS IS INCUMBENT UPON IT. THIS IS AS THOUGH EACH OF THE TWO LIMBS IS, IN EFFECT, A PROVISION FOR BAD AND DOUBTFUL DEBTS, THE DEDUCTION FOR THE SAME IS TO BE MADE WITH REFERENCE TO THE UPPER LIMIT FOR EACH OF THE TWO LIMBS, DEFINED SEPARATELY AS, NOT EXCEEDING I.E., THE SPECIFIED PERCENTAGE OF TOTAL INCOME IN ONE CASE, AND OF THE AGGREGATE RURAL BRANCH ADVANCES FOR THE OTHER. EACH OF THE TWO COMPONENTS WOULD THEREFORE HAVE TO BE RECKONED SEPARATELY, AND NO DISALLOWANCE COULD BE MADE WHERE EACH OF THE TWO COMPONENTS DOES NOT EXCE ED THE LIMITS SPECIFIED THERE- FOR. IT DOES NOT MEAN THAT THE PROVISION ALREADY MA DE IN ACCOUNTS IS TO BE DISTURBED TO ACCOMMODATE OTHER PROVISION, I.E., ADJUST THE PR OVISION ACCOUNT, WHERE IN EXCESS (AS BY RS.1.69 LACS QUA THE INCOME BASED PROVISION IN THE INSTANT CASE), W ITH THAT WHERE IT IS SHORT. WE SAY SO AS THE SECTION DOES NO T SPECIFY THE AMOUNT OF DEDUCTION PER SE, BUT PERMITS THE DEDUCTION IN RESPECT THEREOF UP TO A PARTICULAR SUM. AS SUCH, AS ALONG AS THE LIMIT, SPECIFIED SEPARATELY, WHICH IS THE REASON FOR OUR STATING OF THE ASSESSEE BEING REQUIRED TO MAINTAIN TWO PROVISION A CCOUNTS, IS NOT BREACHED, NO DISALLOWANCE COULD BE MADE. PER CONTRA, TO THE EXTE NT IT IS, DISALLOWANCE FOR THE EXCESS CLAIM WOULD FOLLOW. IT MAY BE ARGUED THAT TH E ASSESSEE COULD, IN THAT CASE, OPEN A SINGLE ACCOUNT WHICH WOULD MAKE THE ADJUSTME NT AFORESAID, I.E., TRANSFER FROM ONE PROVISION ACCOUNT TO ANOTHER, UNNECESSARY. THE TOTAL PROVISION MADE EACH YEAR WOULD STAND TO BE RECKONED WITH REFERENCE TO T HE SUM OF THE TWO LIMBS, AND AS LONG AS THE AGGREGATE OF THE TWO, I.E., 7.5% OF THE CURRENT YEARS INCOME AND 10% OF THE AGGREGATE RURAL ADVANCES, IS NOT BREACHED, N O DISALLOWANCE COULD BE CALLED FOR. THE ARGUMENT NEEDS EXAMINATION. AS AFORE-STATE D, EACH OF THE TWO LIMBS, NEVERTHELESS, REPRESENT A PROVISION U/S. 36(1)(VIIA ). THIS, HOWEVER, WOULD REQUIRE US TO CONSIDER AS TO IF THE PROVISION COMPONENT REC KONED ON THE BASIS OF ALL RURAL 19 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT BRANCH ADVANCES IS TO BE RECKONED ON A YEAR-WISE BA SIS OR THE PROVISION ALREADY CREDITED IN ACCOUNTS IS TO BE TAKEN INTO ACCOUNT, I .E., IF A PROVISION FOR RS.10 LACS (SAY) STANDS ALREADY MADE AND ALLOWED FOR AN EARLIE R YEAR (AY 2007-08, SAY), WOULD THE ASSESSEE BE ELIGIBLE FOR ANOTHER DEDUCTIO N OF RS.10 LACS QUA RURAL ADVANCES ASSUMING, FOR THE SAKE OF SIMPLICITY, NO I NCREASE IN THE RURAL ADVANCES DURING THE PREVIOUS YEAR RELEVANT TO AY 2008-09. TH IS COULD BE EXTRAPOLATED FOR EACH SUCCEEDING YEAR. IT DOES NOT APPEAR TO BE SO, I.E., THAT THE PROVISION ALREADY MADE WOULD HAVE TO BE TAKEN INTO ACCOUNT. THIS IS A S, WHERE NOT SO, THE AGGREGATE PROVISION QUA RURAL ADVANCES WOULD, IN TIME, EXCEED HUNDRED PER CENT OF SUCH ADVANCES, I.E., AS OUTSTANDING AT THE END OF THE RE LEVANT YEAR, AND WHICH CANNOT BE. THE PROVISION, IT NEEDS TO BE APPRECIATED, IS AGAIN ST AN ASSET, I.E., RECOGNIZES THE RISK ASSOCIATED WITH ITS REALISABILITY AND, THEREFO RE, IS VALID ONLY WITH REFERENCE TO THE EXTANT ASSETS, I.E., AS OBTAINING AT THE RELEVA NT TIME. THE PROVISION AS ON 31.03.2008 (ASSET) WOULD THEREFORE HAVE TO BE RECKO NED WITH REFERENCE TO THE ADVANCES (BY RURAL BRANCHES OF THE BANK, SPEAKING I N THE CONTEXT OF SECTION 36(1)(VIIA)) AS ON 31.03.2008. THE SAID PROVISION M AY INCLUDE THAT MADE DURING THE EARLIER YEARS, I.E., WHERE NOT REVERSED, WHICH THUS WOULD HAVE TO BE TAKEN INTO ACCOUNT WHILE COMPUTING THE UPPER LIMIT SPECIFIED QUA RURAL ADVANCES U/S. 36(1)(VIIA). AND IN WHICH CASE, THEREFORE, THE PROV ISION BASED ON INCOME (FOR EACH YEAR U/S. 36(1)(VIIA) WOULD HAVE TO BE MADE, ACCOUN TED FOR AND RECKONED (FOR THE BREACH OF THE LIMIT SPECIFIED IN ITS RESPECT) SEPAR ATELY. THE ARGUMENT AFORESAID APPEALING AT FIRST BLUSH, DOES NOT HOLD. AT THIS STAGE, WE MAY REFER TO THE REVENUES GROUN D NO. 2 (FOR AY 2008-09, IN ITA NO. 399/ASR/2011). THE AO REGARDING THE ENTI RE PROVISION OF RS.852 LACS BY THE ASSESSEE AS AGAINST STANDARD LOANS, EFFECTED AN ADDITION FOR THE SAME, I.E., 20 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT RS.852 LACS. THE LD. CIT(A), WHILE CONFIRMING DISAL LOWANCE OF RS.2 LACS (AGITATED BY THE ASSESSEE PER ITS APPEAL), REGARDING THE BALA NCE RS. 850 LACS AS IN EXCESS BY RS.1.69 LACS, ALLOWED THUS, IN EFFECT, A RELIEF OF RS.848.31 LACS, WHICH THE REVENUE CONTESTS PER ITS GROUND 2. EVEN IF AGAINST STANDARD ASSETS, WHY COULD NOT THE PROVISION BE REGARDED AS A PROVISION FOR BAD AND DO UBTFUL DEBTS. A PROVISION, THOUGH NORMALLY IN-ADMISSIBLE IN COMPUTING INCOME U /S. 28, IS ALLOWED AS SPECIAL MEASURE (IN COMPUTING TAXABLE INCOME) FOR BANKS, IN CLUDING COOPERATIVE BANKS, IN VIEW OF THE NATURE OF THE BUSINESS. WHILE ONE COMPO NENT OF THE PROVISION IS BASED ON INCOME, SO THAT IT WOULD NECESSARILY HAVE TO BE A REGULAR COMPONENT, I.E., FOR EACH YEAR, BASED ON ITS INCOME, THE OTHER PART IS B ASED ON THE AGGREGATE (AVERAGE) ADVANCES BY RURAL BRANCHES, LIMIT FOR WHICH STANDS SEPARATELY ALREADY SPECIFIED. THE PROVISION MADE DURING THE CURRENT YEAR SHALL BE ALLOWED SUBJECT TO THE TOTAL PROVISION (I.E., INCLUDING THAT ALREADY MADE) NOT E XCEEDING THE LIMITS SPECIFIED IN ITS RESPECT. TO CONCLUDE, THE ISSUE OF DISALLOWANCE OF RS.1.69 LACS SUSTAINED BY LD. CIT(A) AND RS.848.31 LACS DELETED BY HIM, AND QUA WHICH THE OPPOSING SIDES ARE IN APPEAL, ARE CORRELATED. THIS ALSO EXPLAINS OUR C ONSIDERING THE TWO TOGETHER, AS ALSO APPARENT FROM THE SAID CONSIDERATION. HOWEVER, WHILE ARGUMENTS WERE MADE IN RESPECT OF THE ASSESSEES APPEAL, THE REVENUES APP EAL WAS LARGELY CONSIDERED AS CONSEQUENTIAL. IN THE ABSENCE OF PROPER DELIBERATIO N, WE DO NOT CONSIDER IT PROPER TO CONCLUDE THE TWO (CORRELATED) ISSUES. OUR FOREGO ING OBSERVATIONS NOTWITHSTANDING, WHICH MAY WELL BE RELIED UPON BY E ITHER SIDE IN THE SET ASIDE PROCEEDINGS, WE ONLY CONSIDER IT PROPER THAT THE MA TTER IS RESTORED TO THE FILE OF THE AO FOR ADJUDICATION AFRESH AFTER ALLOWING THE ASSES SEE A REASONABLE OPPORTUNITY OF PRESENTING ITS CASE, IN ACCORDANCE WITH LAW. NO SID E, WE MAY THOUGH ADD, BE 21 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT CONSTRAINED BY OUR OBSERVATIONS, SO THAT IS AN OPEN SET ASIDE. GROUND 2 OF THE ASSESSEES AND THE REVENUES APPEAL IS DISPOSED OF ACCORDINGLY. REVENUES APPEAL (ITA NO. 399/ASR/2011) 16. THE FIRST GROUND OF THE REVENUES APPEAL IS THE SAME AS THAT FOR AY 2007- 08, DECIDED BY US VIDE PARA 6 OF THIS ORDER, WHICH SHALL THEREFORE APPLY MUTATIS MUTANDIS FOR THIS YEAR AS WELL. WE DECIDE ACCORDINGLY. ASSESSEES CO ( NO. 16/ASR/2011) 17. THIS BRINGS US TO THE ASSESSEES CO, RAISING TW O GROUNDS. THE SAME WAS WITHDRAWN BY THE LD. COUNSEL, SHRI J.S. BHASIN, AT THE TIME OF HEARING, MAKING AN ENDORSEMENT TO THAT EFFECT ON THE APPEAL MEMO ITSEL F. THE LD. DR DID NOT RAISE ANY OBJECTION THERETO. NO PREJUDICE TO EITHER SIDE, IN OUR VIEW, WOULD BE CAUSED BY THE SAID WITHDRAWAL; THE CO IN FACT RAISING ISSUES WHIC H ARE THE SUBJECT MATTER OF THE REVENUES APPEAL. WE ACCORDINGLY ALLOW THE WITHDRAW AL. WE DECIDE ACCORDINGLY. 18. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED; THE REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES; AND THE AS SESSEES CO IS DISMISSED AS WITHDRAWN. AY 2010-11 ASSESSEES APPEAL (ITA NO. 683/ASR/2014) 19. THE FIRST ISSUE, RAISED PER GROUNDS 1 AND 1.1, IS IN RELATION TO CONFIRMATION OF THE ADDITION OF INTEREST SUBVENTION. THE SAME WAS N OT PRESSED DURING HEARING, WITH THE LD. COUNSEL, SHRI BHASIN, MAKING AN ENDORSEMENT TO THAT EFFECT ON THE APPEAL 22 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT MEMO ITSELF. AS NO PREJUDICE IN OUR VIEW IS THEREBY CAUSED TO THE REVENUE, THE SAME IS ALLOWED. THE SAID GROUNDS ARE ACCORDINGLY D ISMISSED AS NOT PRESSED. 20. THE ASSESSEE VIDE ITS GROUND 2 CONTESTS THE UPH OLDING OF THE DISALLOWANCE OF RS.200 LACS EFFECTED U/S. 37(1) R/W.S. OF THE ACT, WHICH READS AS UNDER: GENERAL. 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE ASSESSEE DOES NOT DENY THAT THE LEAVE ENCASHMEN T HAS NOT BEEN PAID, PROVISION FOR WHICH HAS BEEN DISALLOWED INVOKING SECTION 43B( F). THE SAID PROVISION OF LAW, HOWEVER, HAS BEEN DECLARED UNCONSTITUTIONAL BY THE HON'BLE COURT IN EXIDE INDUSTRIES LTD. V. UNION OF INDIA [2007] 292 ITR 470 (CAL), BEING INCONSISTENT WITH THE DECISION BY THE APEX COURT IN BHARAT EARTHMOVERS LTD. V. CIT [2000] 245 ITR 428 (SC). THE SAME, HOWEVER, DID NOT FIND FAVOUR W ITH THE REVENUE IN VIEW OF THE SPECIFIC PROVISION OF 43B(F). DURING HEARING, THE L D. COUNSEL WOULD, ON A QUERY BY THE BENCH, FAIRLY CONCEDE THAT THE DECISION IN EXIDE INDUSTRIES LTD. (SUPRA) STANDS SINCE STAYED BY THE HON'BLE APEX COURT, ALSO ADDUCI NG A COPY OF THE ORDER BY THE TRIBUNAL ( NANITAL, ALMORA KSHETRIYA GRAMIN V. JT. CIT - IN ITA NO. 4240/DEL/2012 AND OTHERS, DATED 09.11.2015/COPY ON RECORD) NOTING THE SAME. HE WOULD HOWEVER MAINTAIN THAT SECTION 43B(F) IS NOT APPLICABLE IN T HE INSTANT CASE AS THE ASSESSEE BANK HAS ENTERED INTO A CONTRACT WITH LIC OF INDIA TO WHOM ONLY THEREFORE THE ASSESSEE PAID PREMIUM. IT IS THE LIC OF INDIA (LIC FOR SHORT), THE INSURER, THAT SHALL, ON THE LIABILITY CRYSTALLIZING, SETTLE THE L EAVE ENCASHMENT, AT THE DEFINED RATES, WITH THE ASSESSEES EMPLOYEES, I.E., ON THEIR RETIR EMENT. THIS VIEW, HE WOULD 23 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT CONTINUE, IS IN FACT SUPPORTED BY THE DECISION BY T HE HON'BLE COURT IN CIT V. HINDUSTAN LATEX LTD . [2012] 209 TAXMAN 42 (CAL), THE OPERATIVE PART OF WHICH READS AS UNDER: IN ANY EVENT WHAT WAS INTENDED BY INTRODUCTION OF CLAUSE (F) WAS TO DENY THE DEDUCTION OF LIABILITIES NOT ACTUALLY INCURRED OR IN OTHER WORDS TO EXCLUDE THE PROVISION BEING MADE AS AGAINST FUTURE LIABILITIES, FROM BEING GRANTED A DEDUCTION. IN THE INSTANT CASE, IT WAS NOT A PROVISION OF FUTURE LIABILITY WHICH WAS CLAIMED AS A DEDUCTION. THE ASSESSEE, A GOVT. COMPANY HAD INSURED ITSELF AGAINST THE LIABILITIES THAT MAY ARISE OUT O F CLAIMS MADE BY THE EMPLOYEES TOWARDS LEAVE ENCASHMENT. THE ASSESSEE BEING COVERED BY A VALID I NSURANCE POLICY AND PREMIUM BEING REGULARLY PAID, INCURS NO LIABILITY TOWARDS LEAVE E NCASHMENT. THE LIABILITY BEING COVERED BY VALID INSURANCE POLICY, IS SOLELY THAT OF THE INSURANCE. EVEN IF SECTION 43B(F) STANDS, M THE CASE OF THE ASSESSEE, WHERE THE LIABILITY IS BORNE BY THE INSUR ER, THERE CAN BE NO SITUATION WHERE ASSESSEE COULD MAKE A VALID CLAIM FOR DEDUCTION U/S. 433(F) SINCE THE ACTUAL LIABILITY IS NOT INCURRED IN ANY OF THE YEARS. HOWEVER, IT CANNOT BE DOUBTED FOR A M OMENT THAT THE PREMIUM PAID TOWARDS THE RENEWAL AND CONTINUED VALIDITY OF INSURANCE POLICY NECESSARILY BECOMES BUSINESS EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS PU RPOSE AND ALLOWABLE AS DEDUCTION UNDER SECTION 37 . ON A QUERY BY THE BENCH AS TO WHERE, THEN, THE PREM IUM PAID TO LIC HAS BEEN DEBITED WHICH OUGHT TO BE, IN THAT CASE, TO THE PRO VISION ACCOUNT, HE COULD NOT FURNISH A SATISFACTORY ANSWER, STATING THAT THE MAT TER, FOR FACTUAL VERIFICATION, BE RESTORED TO THE FILE OF THE AO, A PROPOSITION TO WH ICH THE LD. CIT-DR DID NOT OBJECT. 21. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. THOUGH IT MAY APPEAR THAT THE ASSESSEE HAS RAISED A NEW PLEA, ITS GROUND ONLY RAISING THE ISSUE OF THE UNCONSTITUTIONALITY O F SECTION 43B(F), THE RELEVANT FACTS BEING ALSO NOT ON RECORD, IT IS NOT SO. THE ASSESSE E VIDE ITS LETTER DATED 31.01.2013 TO THE AO HAS BROUGHT FORTH THIS ASPECT, STATING OF HAVING DEPOSITED LIKE AMOUNT (I.E., RS.200 LACS) IN A SCHEME FRAMED BY LIC OF IN DIA. THE ISSUE ARISING, NOTWITHSTANDING THE ASSESSEES GROUND BEFORE US, IS THE SUSTAINABILITY OF THE IMPUGNED DISALLOWANCE. THE APEX COURT, WHILE STAYIN G THE DECISION IN EXIDE INDUSTRIES LTD . (SUPRA), CLARIFIED THAT THE ASSESSMENTS ARE TO BE PROCEEDED WITH AND 24 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT FRAMED ON THE BASIS THAT SECTION 43B(F) IS ON THE S TATUTE BOOK, EVEN AS NOTED BY THE TRIBUNAL IN NANITAL, ALMORE KSHETRIYA GRAMIN (SUPRA). THE ASSESSEE HAVING PURCHASED A POLICY IN RESPECT OF ITS LEAVE ENCASHME NT LIABILITY (OF ITS EMPLOYEES), WHICH, AS EXPLAINED IN BHARAT EARTHMOVERS LTD. (SUPRA), ACCRUES ON A YEAR TO YEAR BASIS, CLAIMS THAT THE SAID LIABILITY HAVING BEEN C ONTRACTED TO THE INSURERS, IT INCURS NO LIABILITY ON ACCOUNT OF LEAVE ENCASHMENT WHEN IT MAKES A PROVISION. WHAT FOR, THEN, ONE MAY ASK, IS THE PROVISION BEING MADE ? THE SAME, IN FACT, STANDS SPECIFICALLY MADE TO COMPLY WITH THE AUDIT OBJECTIO N BY NABARD (IN VIEW OF NABARD RESOLUTION 9, DATED 24.12.2009) WHILE CARRYI NG INSPECTION OF THE ASSESSEES ACCOUNT FOR FY. 2008-09, REQUIRING THE A SSESSEE TO PROVIDE FOR STAFF LEAVE SALARY (AS ON 31.03.2009) ON ACCRUAL BASIS BY HIRIN G THE SERVICES OF A CERTIFIED ACTUARY, FURTHER ADDING THAT THE BANK ESTIMATES ITS LIABILITY TOWARD THE SAME AT RS.690 LACS (REFER ASSESSEES LETTER DATED 31.01.20 13), REPRODUCED AT PARA 7.2 (PGS. 8-11 OF THE ASSESSMENT ORDER). IT IS THIS PROVISION ONLY, MADE AT RS.200 LACS DURING THE CURRENT YEAR, FOR WHICH DEDUCTION, CLAIMED U/S. 37(1), IS BEING DENIED WITH REFERENCE TO SECTION 43B(F). IF, EVEN AS THE HON'BL E COURT OBSERVES IN HINDUSTAN LATEX LTD. (SUPRA), THE PREMIUM STANDS PAID TO LIC OF INDIA O N ANNUAL BASIS, THE SAME GETS ALLOWED U/S. 37(1) OF THE ACT AS BUSINESS EXPENDITURE. WHY, THEN, SHOULD THE ASSESSEE MAKE THE PROVISION? BOTH THE PROVISION AND, CONCOMITANTLY, THE PAYMENT (TO THE INSURERS) IS ONLY IN RESPECT OF ASS ESSEES LIABILITY TOWARD EMPLOYEES LEAVE ENCASHMENT, SINCE ACCRUED. HOWEVER , 43B OVERRIDES THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE MERCANTILE, IN THE INSTANT CASE, SO THAT THE EXPENDITURE, SPECIFIED THEREIN, OTHERWI SE ALLOWABLE, WOULD ONLY BE SO ( I.E., DEDUCTED IN COMPUTING INCOME U/S. 28) ON ITS PAYMENT. EXCEPTION IS MADE FOR LIABILITIES ACCRUING DURING THE RELEVANT YEAR, WHER E PAID BY THE DUE DATE OF FILING THE 25 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT RETURN OF INCOME U/S. 139(1) FOR THAT YEAR. IT IS I N THIS CONTEXT THAT THE LD. COUNSEL WAS ENQUIRED BY THE BENCH AS TO HOW THE PAYMENT OF PREMIUM STANDS ACCOUNTED FOR, WHICH OUGHT TO BE THEREFORE ADJUSTED AGAINST ( DEBITED TO) THE PROVISION ACCOUNT. AS IT APPEARS, THE ASSESSEE HAS MADE A PROVISION OF RS.200 LACS ON ACCOUNT OF LIABILITY TOWARD STAFF LEAVE ENCASHMENT, ALSO PAYIN G THIS AMOUNT TO THE LIC OF INDIA (DURING THE YEAR). THE ASSESSEE, MAKING THE PAYMENT TO LIC IS IN FACT DISCHARGING ITS LIABILITY TOWARD LEAVE ENCASHMENT. AS SUCH, TO THE EXTENT OF PAYMENT THE ASSESSEES CLAIM SHALL NOT BE HIT BY SECTION 43B(F) . THE MATTER, FOR FACTUAL VERIFICATION, IS RESTORED BACK TO THE FILE OF THE A O WHO, UPON SATISFACTION, SHALL ALLOW THE ASSESSEES CLAIM QUA THE SAID EXPENDITURE TO THE EXTENT OF PAYMENT MADE TO LIC OF INDIA DURING THE YEAR, I.E., IN TERMS OF SECTION 43B. WE SAY SO AS THE PROVISION MADE IS NOT FOR THE LIABILITY ACCRUING DU RING THE YEAR, BUT THAT SINCE ACCRUED, SO THAT THE DEDUCTION SHALL BE RESTRICTED TO THE AMOUNT PAID/DISCHARGED DURING THE YEAR. WE DECIDE ACCORDINGLY. 22. GROUND 3 OF THE ASSESSEES APPEAL IS IN RESPECT OF DISALLOWANCE OF A PAYMENT OF ANNUAL MAINTENANCE CHARGES (AMC). THE BANK WAS O BSERVED DURING ASSESSMENT PROCEEDINGS TO HAVE PAID RS.19.11 LACS B Y WAY OF AMC FOR CCTV CAMERAS ON 27.03.2010. THE CONTRACT BEING FOR ONE Y EAR, I.E., 27.03.2010 TO 26.03.2011, THE ASSESSEE HAD CLAIMED EXPENDITURE FO R FULL YEAR, WHILE ONLY A PERIOD OF FOUR DAYS OF THE CONTRACT PERIOD (OF ONE YEAR) H AD EXPIRED DURING THE RELEVANT YEAR. THE AMOUNT, WORKED PROPORTIONATELY AT RS.18,8 4,820, WAS THUS PREPAID AND, ACCORDINGLY, DISALLOWED, WHICH WAS CONFIRMED ON THE SAME BASIS. 23. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. 26 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT THE ASSESSEES CASE, WHICH THOUGH DID NOT FIND FAV OUR WITH THE REVENUE, IS THAT THE EXPENDITURE HAD BEEN PAID UPFRONT AS PER T HE MAINTENANCE CONTRACT, AND IRRETRIEVABLY LOST. THE EXPENDITURE HAD THUS ACCRUE D AS WELL AS PAID. THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE UNDER THE A CT. TRUE, ONCE A LIABILITY HAS ACCRUED, IN TERMS OF TH E LIABILITY TO PAY, ON THE BASIS OF A CONTRACT, IT CANNOT BE SAID THAT THE EXP ENDITURE HAD NOT ACCRUED. THE EXPENDITURE, HOWEVER, IS FOR THE PURPOSE OF THE ASS ESSEES BUSINESS, I.E., FOR MAINTENANCE OF CCTV CAMERAS INSTALLED AT THE DIFFER ENT BRANCH OFFICES OF THE BANK. AS SUCH, THE PAYEE IS OBLIGED UNDER THE CONTRACT TO PROVIDE SUPPORT SERVICES AS ENVISAGED UNDER THE CONTRACT FOR FULL ONE YEAR, I.E ., A PERIOD OF 365 DAYS, BEGINNING 27.03.2010. THE PROBABILITY OF THIS SERVICES BEING REQUIRED, WHICH WOULD BE FOR REGULAR (PERIODIC) MAINTENANCE OR ON BREAKDOWN, ETC . SPREADS EVENLY THROUGHOUT THE YEAR. WHY, AS OBSERVED BY THE BENCH DURING HEAR ING, TO NO REPLY BY THE LD. AR, WOULD NOT THE CCTV CAMERAS BE LIABLE TO BE SERVICED , IF REQUIRED TO, EVEN ON THE LAST DAY OF THE CONTRACT YEAR, I.E., 26.03.2011, OR FOR THAT MATTER, AT ANY TIME AFTER 31.03.2010 (UP TO 26.03.2011). THE BENEFIT OF THE S ERVICE, THUS, ARISES TO THE ASSESSEE ONLY FOR FOUR DAYS OF THE CURRENT YEAR. TH E MATCHING PRINCIPLE, A FUNDAMENTAL ACCOUNTING CONCEPT, WOULD THUS COME INT O PLAY, SO THAT EXPENDITURE RELATABLE ONLY TO FOUR DAYS, I.E., THE PERIOD FOR W HICH THE BENEFIT ACQUIRED UNDER THE CONTRACT HAD ELAPSED DURING THE RELEVANT YEAR, SHAL L BE ACCOUNTED FOR AND RECKONED AS EXPENDITURE, AND THE BALANCE UNEXPIRED AMOUNT CA PITALIZED. IT IS, IN FACT, THIS PRINCIPLE THAT ADVOCATES FOR MAKING A PROVISION FOR ALL KNOWN LIABILITIES, BE IT FOR DEPRECIATION, LEAVE ENCASHMENT, ETC., EVEN THOUGH T HE LIABILITY UNDER THE CONTRACT MAY NOT HAVE ARISEN. IT WOULD BE A DIFFERENT MATTER , WE MAY ADD, WHERE THE BENEFIT THAT STANDS TO BE DERIVED FROM THE EXPENDITURE INCU RRED IS TENUOUS OR NOT LIABLE TO 27 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT BE SUITABLY QUANTIFIED. THIS IS NOT SO IN THE INSTA NCE CASE, AS WITHOUT DOUBT, THE CONTRACT IS TIME BASED, SO THAT THE BENEFIT THERE-U NDER INURES ONLY DURING THE SAID PERIOD. IT IS IN THAT SENSE SIMILAR TO THE ESTIMATE FOR LIABILITY TO PAY INTEREST UNDER A CONTRACT, WHICH ARISES ONLY AT THE END OF THE ACCOU NT (CONTRACT) PERIOD. INTEREST EXPENDITURE, OVER THE PERIOD FOR WHICH THE INTEREST BEARING LOAN (LIABILITY) OUTSTANDS DURING THE RELEVANT YEAR, CAN ONLY BE SAID TO HAVE ACCRUED DURING THE RELEVANT YEAR. THAT IS, THE LIABILITY TO INTEREST, IRRESPECTIVE OF THE CONTRACTUAL OBLIGATION IN ITS RESPECT, ARISES ON LAPSE/EFFLUX OF TIME. THE ASSESS EES HAVING AVAILED THE BENEFIT OF THE LOAN FOR A DEFINITE PERIOD OF TIME DURING TH E YEAR, INTEREST LIABILITY TO THE CORRESPONDING EXTENT WOULD, INDEPENDENT OF THE CONT RACTUAL OBLIGATION AS TO PAYMENT, BE DEDUCTIBLE ON MATCHING PRINCIPLE BASIS. WE THEREFORE FIND NO INFIRMITY IN THE ORDERS BY THE REVENUE AUTHORITIES ON THIS IS SUE. WHY, HOWEVER, WE FAIL TO UNDERSTAND, SHOULD NOT THE REVENUE ALLOW THE BALANC E AMOUNT (RS.18.85 LACS) AS DEDUCTION FOR THE FOLLOWING YEAR, I.E., AY 2011-12, ALSO IN APPEAL BEFORE US. THOUGH NO GROUND IN ITS RESPECT HAS BEEN TAKEN BY T HE ASSESSEE, WHO DOES NOT APPEAR TO HAVE RAISED THIS ISSUE BY WAY OF RECTIFIC ATION APPLICATION U/S. 154, THAT WOULD NOT DETAIN US TO STATE THAT THE ASSESSMENT FO R AY 2011-12, SUBJECT TO VERIFICATION BY THE AO, THE REVENUE SHOULD HAVE ALL OWED THE ASSESSEES CLAIM FOR THE BALANCE AMOUNT IN THE FOLLOWING YEAR (AY 2011-1 2). THAT WOULD IN FACT ACCORD WITH THE BOARDS CIRCULAR DATED APRIL 11,1955. THE PROCEEDINGS UNDER THE ACT ARE NOT ADVERSARIAL PROCEEDINGS, AND THE PURVIEW OF AN APPELLANT AUTHORITY IS THE CORRECT DETERMINATION OF THE ASSESSEES TAXABLE INCOME AND, THUS, TAX LIABILITY, FOR THE YEAR UNDER REFERENCE. THE ASSESSING OFFICER SHALL, ACCOR DINGLY, ON BEING MOVED BY THE ASSESSEE IN THIS RESPECT, ALLOW THE ASSESSEES CLAI M FOR THE BALANCE AMOUNT, SEEKING SUCH REASONABLE SATISFACTION AS HE MAY DEEM FIT. OU R OBSERVATION IN THE MATTER IS 28 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT GUIDED, APART FROM THE DECISION BY THE HON'BLE COUR TS QUA THE PURVIEW OF THE APPELLATE AUTHORITY, PRINCIPALLY THE TRIBUNAL, AS A LSO ITS DUTY WHICH, AS EXPLAINED IN CIT V. WALCHAND AND CO. (P.) LTD. [1967] 65 ITR 381 (SC), IS TO DEAL WITH AND DETERMINE ALL THE QUESTIONS WHICH ARISE OUT OF THE SUBJECT MATTER OF APPEAL, IN LIGHT OF THE EVIDENCE AND CONSISTENTLY WITH THE JUSTICE O F THE CASE. WE DECIDE ACCORDINGLY DISMISSING THE ASSESSEES GROUND 3. 24. GROUND 4 OF THE ASSESSEES APPEAL WAS NOT PRESS ED DURING THE HEARING, WITH THE LD. AR MAKING AN ENDORSEMENT TO THAT EFFECT ON THE APPEAL MEMO ITSELF. THE SAME BEING NOT OBJECTED TO, AND CAUSING IN OUR VIEW , NO PREJUDICE TO OTHER SIDE, IS PERMITTED TO BE WITHDRAWN. THE GROUND IS ACCORDINGL Y DISMISSED AS WITHDRAWN. WE DECIDE ACCORDINGLY. REVENUES APPEAL (ITA NO. 699/ASR/2014) 25. THE ONLY ISSUE RAISED IS WITH REGARD TO THE ASS ESSMENT OF UNPAID DIVIDEND DISTRIBUTION TAX AS INCOME FROM OTHER SOURCES U/S. 56 OF THE ACT. OUR DECISION QUA THE GROUND 1 OF THE REVENUES APPEAL FOR AY 2007-08 SHALL MUTATIS MUTANDIS APPLY FOR THIS YEAR AS WELL. WE DECIDE ACCORDINGLY, DISMISSING THE REVENUES GROUNDS 1 AND 2. 26. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, AND THE REVENUES APPEAL IS DISMISSED. AY 2011-12 ASSESSEES APPEAL (ITA NO. 684/ASR/2014) 27. THE FIRST ISSUE, RAISED BY GROUND 1 AND 1.1, IS IN RELATION TO CONFIRMATION OF THE ADDITION OF INTEREST SUBVENTION. THE SAME WAS N OT PRESSED DURING HEARING, WITH 29 ITA NOS. 47,93,348,399&CO.16/ASR/2011, 699,683,684/ ASR/2014 THE HOSHIARPUR CENTRAL COOP. BANK LTD. V. ADDL/ ASS T./DY CIT THE LD. COUNSEL SHRI BHASIN MAKING AN ENDORSEMENT T O THAT EFFECT ON THE APPEAL MEMO ITSELF. AS NO PREJUDICE IN OUR VIEW IS THEREBY CAUSED TO THE REVENUE, THE SAME IS ALLOWED. THE SAID GROUNDS ARE ACCORDINGLY D ISMISSED AS NOT PRESSED. 28. OUR ADJUDICATION IN RESPECT OF ASSESSEES GROUN D 3 OF THE ASSESSEES APPEAL FOR AY 2010-11 (REFER PARA 21) SHALL MUTATIS MUTANDIS APPLY FOR THE REVENUES GROUND 2. WE DECIDE ACCORDINGLY. 29. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 16, 2018 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 16.07.2018 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: THE HOSHIARPUR CENTRAL COOPE RATIVE BANK LTD., RAILWAY ROAD, HOSHIARPUR (2) THE RESPONDENT: ADDITIONAL COMMISSIONER OF INCOME TAX, HOSHIARPUR RANGE, HOSHIARPUR (3) THE CIT(APPEALS), JALANDHAR (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T TRUE COPY BY ORDER